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Spouting off a Roth, or IRA to somebody who hasn't a clue of either is bad advice. Not everybody can stomach the market swings or has the diligence to invest and hold the funds in retirement and will pull the funds with fees at the lowest point of the market and completely lose their ass-never again investing.
The OP was asking for advice on paying down the car or mortgage not worthless blanket investment advice.
My advice would be to pay down the car first. It's an asset that loses value every mile and year while your home will go up in value over the years.
You can have your IRA/ROTH funds in cash or low risk funds too....sorry, but paying down low interest accounts at the expense of your retirement funds/emergency funds just isn't sound financial advice, even if it is a car loan.....
You can have your IRA/ROTH funds in cash or low risk funds too....sorry, but paying down low interest accounts at the expense of your retirement funds/emergency funds just isn't sound financial advice, even if it is a car loan.....
I totally agree with you and agree you gave sound advice.
I'm just pointing out that he OP did not ask for investment advice. How do you know what risk tolerance the OP has? How do you know if they are willing to park the money and forget it or face stiff fees and taxes? Only a one on one with an investment/retirement adviser can determine that. The OP did not even know what a ROTH/IRA was.
I would pay down the car. That was how I got debt free (other than my house), by paying down the smallest loan first. Even tho some of the ccs I had were higher interest, I was more motivated paying off the smaller loans first, and then applying that money to the next loan. Freeing up money is really motivating. Now that Im totally out of debt (other than the house), Im putting large amounts in savings, and paying some extra on the mortgage. Worked for me anyway.
I totally agree with you and agree you gave sound advice.
I'm just pointing out that he OP did not ask for investment advice. How do you know what risk tolerance the OP has? How do you know if they are willing to park the money and forget it or face stiff fees and taxes? Only a one on one with an investment/retirement adviser can determine that. The OP did not even know what a ROTH/IRA was.
A lot of people come here to ask this similar question, usually younger people that really don't understand the retirement savings, what is available to them, etc. Just because he didn't ask the question doesn't mean it should be ignored. The idea is to look at the entire financial picture--which obviously we can't do here-but at least it gets people thinking along those lines. Say you walked into a financial planners office and said you want a ROTH and that is all you said. A good planner would never open a ROTH for you without looking at your entire financial situation because what if a ROTH isn't what you really need.
The OP asked how best to spend his money--even if he didn't say it in those words. Paying of a car loan at 1.5% is not the best use of your money. Now, if the car loan was at 10%, by all means, pay it off. We just got a new car, took on a car payment because we got 0% financing...no way would I put an extra dime toward that payment because it's just not a financially savvy move. The buzz around town though is "pay off all debt" so people think they need to do that and that is the best financial move...it's not when interest rates are so low...it's an emotional decision then, not a financial one.
Also, look up the time value of money. The more you can put away when you are young, the more you will have when you retire. Even waiting 5 years means you have to put away significantly over time to realize the same return when you retire.
we have a $195,000 mortgage at 4.25% APR/30 years, with taxes we pay $1370 every month, we also have a $17,000 car loan with RBFCU at 1.65%, 5 years plan.
thanks
If you keep the money as cash or pay down your home, it will change your ability to refinance by giving you the flexibility to reduce your LTV and possible rate.
How long are you planning on keeping this home. Is your family going to grow and you will need buy another home?
we have a $195,000 mortgage at 4.25% APR/30 years, with taxes we pay $1370 every month, we also have a $17,000 car loan with RBFCU at 1.65%, 5 years plan.
Looking at my budget sheet (sad i even have one), my discover card, bill me later and sony debt will be paid off around April May next year. And I will have roughly $300-$400 to go on extra payments towards the mortgage and car.....would it be fine to split $200 extra to mortgage and $200 extra to car payments? Or how else could I decrease the debt that I have? would it be better to pay down the car first, then concentrate on paying down the mortgage. I'f i'm posting in the wrong forum also, please can a mod move it to the appropriate forum.
thanks
Do you have an emergency fund? (money set aside that is easily accessible) that you touch only if you "absolutely have to". Start with that first.
Except at income tax time, you can't use the car loan but you can use the home mortgage.
but even with the ability to deduct interest expense from taxes, with a 4.25% rate on the mortgage and 1.65% on the car loans; your mortgage interest expense is still higher.
I don't understand why people say stuff that they think is meaningful when they are clearly clueless. if you are aware of the tax deduction and want to add that to the conversation, you should have also considered whether or not the tax deduction would reduce the effective interest rate to below the rate of the car loan. it doesn't, so there is no point for you to throw it in there as if you are so proud of yourself for knowing a tidbit of information.
I don't want to be rude but this is ultimately a math equation and if you don't understand that then you shouldn't be throwing in your "expert" wisdom.
there is another aspect to it which is the more psychological benefit of reducing number of debt accounts and attacking small goals before large ones. but when we are talking about tax deduction for a mortgage, interest rates, total debt, etc. that's math.
Except at income tax time, you can't use the car loan but you can use the home mortgage.
And?
Still won't matter, after calculating the tax shield rate, the car loan is still much cheaper.
The simple answer is pay off the highest interest rate first. I have no idea how someone would react to not having a car payment. Some people get really excited and rush out and buy a new car. Someone else might get inspired and finally see the impact of buy now, pay later and decide that that brand-new 60" 4K TV isn't worth $100 a month in payments for the next seven years. I've seen both, but that's just anecdotal evidence and I'm no expert on psychobabble.
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